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Does Refinancing Car Hurt Credit

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When Is It Worth Refinancing A Car

Will refinancing my auto loan hurt my credit?
  • A refi could make sense if you lost your job, or a spouse is working less and you need to cut your monthly budget.
  • A refi might be a good idea if you can qualify for a better interest rate or better terms than you got on your old loan. It could be that when you got your car loan your credit score was pretty shabby, so you didnt get a great rate. However now that your score has improved, youre likely eligible for a much better rate. Lowering your payment by a percentage point or two can make a difference and save you money.
  • Refinancing might also align with your goals. For example, if youre on a mission to pay down debt, applying the monthly savings from refinancing can help you get there.

Not Checking Your Credit History

Your credit score is a big factor in determining just how good your refinancing interest rate could be. If it has improved since you got your original auto loan, you may qualify for a better APR on your refinance loan than your original car loan. Check your credit score for free with the LendingTree app.

You should also check your credit report at AnnualCreditReport.com to ensure that there are no mistakes dragging your score down.

According to the Fair Credit Reporting Act , the credit reporting agency has 30 days to investigate a reported inaccuracy. If the disputed information cannot be proven to be correct, the agency must remove it from your credit file. If there is a correction, you are entitled to ask for two things: One, a free, updated copy of the credit report and, two, for the agency to send notices of correction to anyone who requested your credit report within the last six months.

If your credit report is accurate but your score isnt very high, there are lots of ways to improve your score. Taking the time to improve your credit score can result in auto loan offers with lower APRs and more favorable terms.

Is It Reasonable To Refinance My Car With The Same Lender

Your existing lender may be able to refinance your vehicle loan in most cases. It could even be simpler than filling out a new lenders application. But it doesnt imply its the most cost-effective alternative for you. The ultimate line is that shopping around can be worthwhile.

For many lenders, though, the answer is yes. However, you must carefully consider your refinancing alternatives to ensure that you receive the most favorable loan conditions. If youre happy with your existing lender, it could be enough to convince you to refinance with them.

Refinancing with the same lender can make the process of replacing your old mortgage go more smoothly, but there are a few things to think about before you do so.

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If youre considering refinancing with a different lender, make sure your current one can satisfy your needs before signing on the dotted line.

Just because youve done business with a lender before doesnt mean you shouldnt double-check everything. You may use a mortgage refinancing calculator to assist you grasp the new loan conditions.

Before making a choice, we strongly advise you to shop around and compare rates with different lenders. You never know what opportunities are waiting for you out there.

NOTE: When you buy a car, you shop around for a loan from various lenders. When refinancing, its a good idea to go through the same process of comparison shopping. But the ball is on your court.

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When Is The Best Time To Apply For Car Loan Refinancing

There are a few common situations when you can refinance your car and save money.

  • When you want to change your current deal: If you financed your existing loan from the dealer, its possible youre paying more than required as a monthly payment.
  • If your credit score has risen: You can get better APRs for car refinancing if your score has improved in the past year.
  • If you want to change the loan term: A rise in monthly expenses may necessitate refinancing to reduce monthly payments.
  • When interest rates are low: You can refinance auto loans to take advantage of low consumer loan rates in the market.
  • If you want cash in hand: You can choose cash-out refinancing if you need ready cash to meet immediate expenses. This is only possible if you have positive vehicle equity .

Can I Refinance My Car With The Same Lender

Refinancing Tips

Can I refinance my car with the same lender? Yes, many lenders will allow you to refinance your existing car loan. Keep in mind that lenders may not offer refinancing as an option. Especially if your vehicle is in poor condition, has low value, or you have few payments remaining on your existing loan.

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You Bought The Car Within The Last Six Months

Your credit score takes a hit when you get a new loan. While you might find more favorable rates advertised soon after you buy your new or used car, the downswing in your credit score means you probably wont get as favorable a rate as you would if you waited for your score to recover. The general advice is to wait at least six months before refinancing your auto loan.

Hard Credit Inquiry Or Hard Pull

When you apply to borrow money, the lender will run a credit check on you. They will gather all possible financial information to determine if you will be a reliable borrower or customer.

Information will include how much debt you currently hold, how long youve held it, and how well youve been paying it back. This kind of hard check will hurt your credit score, at least temporarily.

After youve made your first payments on time, your score should recover and even start to rise.

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Check Your Credit First

Before applying for auto loans, know where your credit score stands. It can be lower than you expected, which could make it challenging to get approved for a loan with favorable terms. But when you check your score, youll know where you stand and if its best to work on improving your credit score before applying and getting hard inquiries on your report.

Some lenders offer prequalification tools on their websites that let you view potential loan offers without impacting your credit score. You can input your information to gauge your approval odds if you need to refinance your car loan sooner than later.

What Should You Keep In Mind

Does Refinancing a Loan Hurt Your Credit Score?

Here are the two most important considerations to keep in mind:

  • While shopping for a loan, multiple hard inquiries may not do as much harm to your credit score as a single inquiry might. Hence, you may want to make sure that youre applying with at least three lenders at a time.
  • Taking on a brand new debt may cause a temporary dip in your score, but since refinancing replaces your existing loan with another loan of the same amount, the impact remains minimal.

Once you do accept a new refinancing deal, the new loan will show up on your credit report, and the track will be kept on your payments toward it. On the other hand, your original loan will remain on the report and be marked closed in good standing for almost ten years.

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Will Refinancing A Car Hurt Your Credit

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Refinancing a car can save you money on interest or give you a lower payment and some breathing room in your budget.

When you refinance a car loan, it could temporarily ding your credit score, but its unlikely to hurt your credit in the long run.

How Long Does It Take For Credit Score To Go Up After Refinancing

Remember that payment history generally accounts for the largest portion of your credit scores, and missed payments can remain on your credit reports for seven years after the delinquency. Even after your refinance is complete, it may take several months for the new account to appear on your credit reports.

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Is It A Good Idea To Refinance A Car Loan

Everyoneâs financcial situation is unique, but sometimes it really is a good idea to refinance a car loan.

For starters, interest rates can drop. In the third quarter of 2019, new-car loans were at 5.38% a year later, they were at 4.22%. Used-car loans during that time period went from 9.09% to 8.43%.

So if you bought a car in late 2019 or early 2020, refinancing the original loan could make sense â especially since auto refinance rates as of March 2021 were as low as 1.99% .

Some other reasons to refinance a car loan:

  • Your existing loan might be a high-interest car loan. Maybe now you can get better terms because you have better credit or income – or both!
  • You got your loan at the dealership, not knowing that dealers tend to mark up the cost of financing.
  • Your options were limited when you bought the car. Maybe you were in a difficult financial position and getting a bad-credit car loan was the only option.
  • You want to pay the car off early, but the loan has a prepayment penalty. Refinancing into a no-penalty loan could let you make those extra payments and own your car faster.

In cases like these, refinancing could be the right way to go.

How Can I Get Out Of A High Car Payment

What Happens When You Refinance a Car Loan?

5 options to get out of a loan you cant affordRenegotiate the loan You can reach out to your lender and negotiate a new payment plan Sell the vehicle Another strategy is to sell the car Voluntary repossession Refinance your loan Pay off the car loan.

Your car payment wont go down if you pay extra, but youll pay the loan off faster Paying extra can also save you money on interest depending on how soon you pay the loan off and how high your interest rate is.

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Not Talking To Your Current Lender

If youre in a tough financial situation, one of the best things to do is pick up the phone. Lenders will sometimes offer deferrals, penalty fee waivers and other options that could help you if you have a short-term problem. They may also be willing to give you a refinance offer if you have a longer-term problem or goal.

Remember that if refinancing is your truly best option, its vital to get quotes from multiple lenders. It doesnt hurt your credit to apply to multiple lenders any more than it does to apply to one. Here are the best auto refinance companies.

How Does Auto Loan Refinancing Work

Think that it makes sense to refinance a car? Great! Now its time to learn about how auto loan refinancing works.

Basically, you use a new loan to pay off your current car loan. Ideally, this new loan has a lower interest rate or lower monthly payments. Thats what really makes auto loan refinancing worth it.

What happens with that new loan?

The new lender takes over the lien on the car. This means theyll have the legal right to take possession of the car if you fail to make your payments. Youll make payments to them now instead of the previous lender.

However, its important to keep in mind that you will likely need to have good credit in order to qualify for a lower interest rate. Additionally, youll need to make sure that the new loan term is shorter than your existing loan in order to avoid paying more in interest over time.

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Is Refinancing An Auto Loan Worth It

Theres a lot to consider when it comes to knowing when to refinance your car loan. If you can access a better interest rate and your current loan doesnt have prepayment penalties, refinancing could certainly be worth it. The same is true if you need to lower your monthly bills.

But if you cant afford a negative impact on your credit score or refinancing would cost you more over the life of your loan, you may want to wait for conditions to change.

If its time to refinance your car loan or will be soon shop around for the best refinancing rates and lender for you. Some lenders offer free quotes that make it easy to compare. Even a small difference in interest rates can make a big impact on how much you pay over time.

How Can You Reduce The Impact Of Auto Refinancing On Your Credit

How does auto loan refinancing affect credit score?

If youre someone whos struggled with maintaining a decent credit score and dont want multiple hard inquiries to tarnish it at once, you can always shop around for rates with lenders that offer a pre-qualification process.

  • Pre-qualification or pre-approval for auto refinancing involves a soft credit check which will not affect your credit score. Based on the soft credit inquiry, you will be shown a list of offers that you have been pre-approved for. However, this is only a way to compare the rates and benefits offered by each deal. Once you finalize an offer, you will still have to go through a hard credit inquiry which will affect your credit score. There could be some difference in the terms offered in the final offer as well.
  • If youre hell-bent on reaching out to multiple lenders for final offers, be ready for several hard inquiries. However, an advantage of this is that if you undergo several inquiries in a short period, most credit agencies will bundle them and treat them as a single inquiry. VantageScore has a 14-day window for hard inquiries of the same loan type, while FICO has a 45-day window.

You can also minimize the impact of car refinancing on your credit by improving your score in the months leading up to your application. You can do this by:

  • Checking your credit reports regularly and tracking any risk factors
  • Being on time with your current payments
  • Clear any pending dues, past-due accounts, and other fees
  • Applying for credit only when you need it

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Other Tips For Reducing The Impact On Your Credit Score

No matter what you do, refinancing a car loan and taking on new debt will affect your credit score. Still, there are ways you can limit the impact it has.

  • Know your credit score going into the process. This can help you know if you are likely to be eligible for refinancing before you start shopping around.
  • Avoid applying for other forms of credit soon before or after applying for an auto loan. Your credit score will be lowered even more if you apply for a credit card or mortgage too soon before auto loan refinancing. It can also affect your rates adversely if you apply for another form of credit too soon after refinancing.
  • Keep your credit in good standing. By making on-time monthly payments and not increasing your overall debt, you can maintainand even improveyour score and lessen the chance that youll be rejected by a lender after a hard credit pull.

Extending The Loan Term

The longer the loan term, the more you will pay in total interest over the life of the loan. While it may be tempting to focus only on securing a lower monthly payment, its best to balance that with maximizing your total auto refinance savings. Heres an auto refinance calculator to help you run the numbers.

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Save Money On Interest

Perhaps the number one reason people refinance their car loans is to try to get a lower interest rate. This is one of the biggest ways for you to save money over time.

As you shop around to refinance your car, make sure you check out average loan rates based on credit scores to give you an idea of market conditions.

How To Increase Your Chances Of Getting Approved To Refinance An Auto Loan

What Is The Best Credit Score To Refinance A Car

If youre nervous about getting approved for an auto refinance loan, dont worry. There are plenty of things you can do to strengthen your financial profile and reduce the risk to a lender. Remember that you dont need a perfect financial situation to get approved, but making some of these improvements can help.

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How Does Auto Refinancing Work

When you refinance your car loan, you use a new loan to pay off your existing loan. The idea is to get a loan with a more competitive interest rate, and youll likely get a lower monthly payment as youll reset the loan term. Depending on the new interest rate, you could save money if your new rate is far lower. Still, some borrowers actually pay more in interest over the life of the loan as the lender has more time to collect from you.

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